Liability , Business Law and Ethics

Liability:

Liability under the section may arise on the death of a member if the death reduces the membership below the statutory minimum for the particular company and:

(i) no transferee is registered as a new member, and

(ii) the personal representative of the deceased member does not elect to be registered as a member, within the prescribed six months.

It should be noted that the section limits a member's liability to debts contracted after the six months. It does not make the member liable for any debts incurred during the six months which follow the reduction of membership. Neither does it make a member liable for any tort committed by the company during the relevant time.

Subsection (1) of Section 109 of the Act requires a company's officers and other agents to write its name on its seal, letters, business documents and negotiable instruments. This is to be done primarily for the benefit of third parties who might contract with a limited company without realising that it is a limited company.

Subsection (4) of the section provides that any officer or agent of the company who does not comply with the aforesaid statutory requirements shall be liable to a fine not exceeding one thousand shillings, and shall further be personally liable to the holder of any bill of exchange, promissory note, cheque or order for goods which did not bear the company's correct name, unless the amount due thereon is duly paid by the company. The imposition of personal liability on the company's agent is what is regarded, in a somewhat loose sense, as "lifting the veil of incorporation". A probably better view would be to regard the section as a codification of the common law rule which makes an agent personally liable under a contract which he enters into with a third party without disclosing that he is acting for a principal. That, in effect, is what happens if a company's agent does not comply with the statutory requirement.

Liability under this section is illustrated by Nasau Steam Press v Tyler & Others (7) and Penrose v Martyr (8). In the latter case the plaintiff told the court that she was NOT aware that the company was limited till after the bills were accepted. She had therefore been misled as to the legal status of the company. It should however be noted that the section does not require that the third party suing the company's officer should have been misled by the officer's failure to write the company's name correctly.